Is the Federal Reserve Independent?

Although the Federal Reserve would continue to pretend it is an independent entity, the fact is it has become another political wing of the federal government. If you did not think so, let’s juxtapose recent comments by Fed officials to real developments within the bond market. How so? Let’s navigate as Bloomberg reports, Fed Officials Said Recovery Insufficient to Alter QE2,……

Fed officials said at the meeting that Treasury yields climbed because of “an apparent downward reassessment by investors of the likely ultimate size of the Federal Reserve’s asset-purchase program, economic data that were seen as suggesting an improved economic outlook, and the announcement of a package of fiscal measures that was expected to bolster economic growth and increase the deficit,” the minutes said.

Really? Are we to believe these Fed officials as to why rates climbed over the last six weeks of the year?

“An apparent downward reassessment of the likely ultimate size of the Federal Reserve’s asset-purchase program”? NOT a CHANCE!! Confirmed in today’s release.

”Economic data that were seen as suggesting an improved economic outlook”? Heh? Seriously? STOP IT!! Confirmed in today’s release.

“The announcement of a package of fiscal measures that was expected to bolster economic growth and increase the deficit”? Yes. This is true.

The Fed officials go one for three. In pro baseball, they may win the batting title. In the real world of central banking, they strike out and lose continued credibility.

Why did interest rates really go up over the last six weeks of the year?

Sovereign credit issues in the EU drove rates in peripheral nations (Ireland, Spain, Portugal, Italy) sharply higher and our rates moved in sympathy. (Although a politicized Fed would not want to draw attention to this!!)

Nations in Asia raised rates to stem increasing inflationary expectations from potentially overheating economies. (Although a politicized Fed would not want to draw attention to this!!)

The municipal bond market sold off very sharply given credit concerns in general and the discontinuation of the Build America Bond program specifically. (Although….I know, I know, you get it about the Fed being politicized.)

While we did not learn about these developments from today’s Fed release, what did we learn?

Information received since the Federal Open Market Committee met in November confirms that the economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment. Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. The housing sector continues to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.

Add it all up and we continue to experience our “walking pneumonia economy.”

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

2 Comments on Is the Federal Reserve Independent?

Doyle writes,”Although the Federal Reserve would continue to pretend it is an independent entity, the fact is it has become another political wing of the federal government.”
Not quite, Larry. They want to have their cake and eat it, too. They refused a FOI document request by Judicial Watch on the grounds that they were NOT a governmental agency, but in the guise of Quantitative Easing have distributed untold billions at 1% interest cost to the very banks that own the Fed (surprise) and which reserve the right to charge usurious rates of interest, plus late fees and penalties(surprise) to their card-holding customers while paying them no interest on savings. It is the biggest con game imaginable, and the cost is very rapidly rising inflation for the necessities: food, fuel, clothing.”Longer-term inflation expectations have remained stable”- no, Larry, wake up.